Unfair commercial practices law summary

Marketinglaw.co.uk has covered many aspects of the new unfair commercial practices laws in force since 26th May 2008, but now at last, by way of a paper written by marketinglaw editor Stephen Groom and Emily Jones for the Direct Marketing Association of America, is a summary of all key points.

On 26 May 2008, new laws protecting consumers and significantly impacting advertisers and marketers in all media came into force in the UK.

The Consumer Protection from Unfair Trading Regulations 2008 (the "Regulations") implement EU Directive 2005/29/EC on "unfair business to consumer commercial practices" and are intended to further harmonise EU member states' consumer protection laws.

Two of the principal objectives Brussels had in mind when it started down the "unfair commercial practices" path in 2003 were plugging the gaps left by a series of sector-specific harmonisation measures and increasing European consumers' confidence that they could shop across EU state borders without loss of protection from sharp marketing practices.

"Maximum harmonisation"

This Directive is a "maximum harmonisation" measure, meaning that in the areas covered by the measure, EU member states' consumer protection laws cannot be stricter than those in the Directive.

The deadline for pan EU implementation of the Directive was 12 December 2007 and although a number of member states have followed the UK's tardy example, most of the 27 should have it on their statute books by the end of 2008.

In the UK, the Regulations replace all or at least substantial parts of over thirty statutes and regulations and they apply to both online and offline commercial communications. They also extend beyond the point of sale to cover, for example after sale service.

At the heart of the Regulations is a general prohibition against unfair commercial practices. Also included are provisions specifically targeting "misleading actions", "misleading omissions," "aggressive commercial practices, and thirty one specific practices branded as "always unfair," whatever the circumstances.

"Commercial practice" has a wide definition that applies across the gamut of advertising, marketing and promotional activity and is channel neutral, viz:

"any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader, which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction (if any) in relation to a product."

Slew of new concepts

The Regulations are the closest the UK has ever come to a codified, semi-one stop marketing law. They also introduce a slew of concepts that are quite new to UK consumer protection law such as "average consumer", "professional diligence", "transactional decision," "invitation to purchase" and "material distortion" of consumer behaviour.

UK businesses should be reviewing all their consumer-facing marketing and sales practices to ensure they are compliant.

What will be prohibited under the Regulations?

Unfair commercial practices – prohibiting any act, representation, course of action or communication by a trader that is knowingly or recklessly engaged in by a trader, contravenes the requirements of professional diligence and materially distorts (or is likely to distort) the economic behaviour of the average consumer.

Average consumer" is defined throughout the Regulations as a consumer that is "reasonably well informed, reasonably observant and circumspect" except in two specific scenarios.

In the first scenario the "practice" in question is directed at a particular group of consumers. Here the benchmark will be the average member of that group.

In the second scenario, the trader can be reasonably expected to foresee that a clearly identifiable group would be particularly vulnerable to the practice or the product being advertised. This would be by reason of the group members' mental or physical infirmity, age or credulity." Here again the benchmark will be the average member of that group. Obvious examples are children and the elderly, but one suspects there may be other, less obvious situations where it will be something of a challenge to assess when the "reasonable expectation" of the trader will likely be held to arise.

"Professional diligence" has a definition which is not a model of verbal economy and reads

"the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers which is commensurate with either:

(a) honest market practice in the trader's field of activity, or(b) the general principle of good faith in the trader's field of activity."

Misleading actions – criminalising any commercial practice that deceives (or is likely to deceive) the average consumer, causing them to make a "transactional decision" they would not otherwise have taken.

"Transactional decision" is defined as "any decision taken by a consumer concerning whether, how and on what terms to purchase, make payment in whole or in part for, retain or dispose of a product."

Here there is strict liability subject to "due diligence" and "innocent publication" defences, so there is no need for the prosecution to prove that the defendant engaged in the practice "knowingly" or "recklessly." The same applies to the "misleading omissions", "aggressive practices" and "always unfair thirty one practices" dealt with below.

Examples of "misleading actions" are:

providing false information about the characteristics or existence of a product;

giving misleading information about price, repairs or service requirements; and

creating confusion, for instance in comparative advertising, with a competitor's products, trade marks or trade names.

Misleading omissions – prohibiting any commercial practice that withholds or hides material information and thereby causes the average consumer to take a transactional decision they would not have taken otherwise. "Material" information" is information about a product that the consumer needs in order to make an informed transactional decision.

Minimum information requirements – the Regulations set out a list of "material information" types that must be provided when a practice classifies as an "invitation to purchase". If these are not included, then "material" information will be regarded as omitted.

It is therefore key to establish whether marketing material amounts to an "invitation to purchase," thereby triggering the strict disclosure requirements. This is defined as:-

"a commercial communication which indicates characteristics of the product and the price in a way appropriate to that commercial communication and thereby enables the consumer to make a purchase."

Examples given by the authorities here include buying by cellphone using a pre determined code or ordering off the page using an order form. There is still uncertainty as to just how far this definition extends, but at first glance it appears to envisage a closed, seamless loop between the marketing communication and the purchase.

"Aggressive commercial practices – prohibiting any commercial practice which "in context significantly impairs the average consumer's freedom of choice through harassment, coercion or undue influence and thereby causes the consumer to make a transactional decision they would not have taken otherwise, using harassment, coercion or undue influence."

This would include for example a trader imposing non contractual but onerous or disproportionate barriers to a consumer's exercise of his contractual rights, such as a right to terminate a cellphone contract.

The thirty one "always unfair" practices

The Regulations specify thirty one commercial BtoC commercial practices which are automatically unfair, no argument (subject to due diligence and innocent publication defences). These include:

claiming ….to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent;

falsely claiming or creating the impression that the trader is not acting for purposes relating to his trade, business, craft or profession or falsely representing oneself as a consumer. This could catch so-called "astro-turfing" where a business or its agency poses as a consumer to post blogs or seed content on the internet (artificially simulating grass-roots support or interest);

falsely stating that a product will only be available for a very limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice;

making persistent and unwanted solicitations by telephone, fax or e-mail or other remote media except in circumstances and to the extent justified to enforce a contractual obligation. Query does "remote media" extend to postal mailings?

One suspects it does.

Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either-

(a) there is no prize or other equivalent benefit, or(b) taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost

This has recently been interpreted by the UK's Institute of Sales Promotion as criminalising any requirement to incur any expense whatsoever to claim a prize, even the cost of an inland mail postage stamp. The writer disagrees provided the requirement is pointed out in the promotion rules. Otherwise the word "false" in the practice description would be meaningless.

Including in an advertisement a direct exhortation to children to buy advertised products or persuade their parents or other adults to but advertised products for them. This is one of two of the "thirty one" which following industry lobbying are not criminal offences in the UK, but can give rise to an application to the court by the OFT for an "Enforcement Order" preventing repetition of the practice.

Using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial). This is the other one of the "thirty one" that is not a criminal offence.

What are the penalties for failure to comply and what is the enforcement picture?

Failing to comply with the Regulations could result in a fine for culpable traders and/or their "consenting, conniving" or negligent directors and senior managers of up to £5,000 or, on indictment, a fine and/or up to two years imprisonment. Enforcement will be by way of publicly funded consumer protection authorities such as "Trading Standards" departments of local government authorities and the "Office of Fair Trading", the closest thing the UK has to the Federal Trade Commission.

Breach of the Regulations will not of itself give either UK consumers or UK traders the right to launch civil proceedings or private prosecutions against marketers whose unfair commercial practices have allegedly caused them loss or damage.

This contrasts with the position in other EU states such as Germany and Ireland, for example, where traders who have been disadvantaged by a competitor's breach of these rules do have the right to take direct enforcement action.

The UK Government has promised to review the position here within the next three years, but so far no head of steam has built up behind any radical change. Perhaps this is because, while businesses might like the chance to take a pop at their competitors by direct action, it is unlikely such a right would arrive without a similar but less attractive direct enforcement right for consumers.

The international dimension

It is unlikely that the writ of UK enforcement bodies looking to police the Regulations will run as far as US traders targeting campaigns at UK consumers direct via the internet for example. However the picture will be different if UK intermediaries are part of the communication process.

Where US marketers are involved, the Office of Fair Trading ("OFT") has also been known to at least threaten to make a direct request to the FTC to take enforcement action against US marketers targeting UK consumers who are allegedly in breach of the Regulations. It is unclear to say the least, however, on what basis the Regulations could be invoked as a basis for enforcement action in the US courts, whether by the OFT or the FTC.

The bottom line

The definitions and the offences may have been harmonised but European enforcement discord has not. Hence the existence of direct enforcement rights for consumers and traders in some EU states but not in others like the UK.Nor has any significant effort yet been made in the UK to better resource the bodies who have been given the task of policing the Regulations, although having said this, there are moves afoot to give Trading Standards officials a more flexible set of sanctioning tools to replace the lengthy and costly blunderbuss of a full scale criminal prosecution.

Under the Regulatory Enforcement and Sanctions Bill currently going through Parliament and likely to be fully in force by the fall of 2009, miscreant marketers may face new delights such as spot fines, "restoration notices" and "permanent cessation notices" with the inevitable new quango to go with it, the "Local Better Regulation Office."

Even more consumer law reform in the offing?

And that's not the end of the story for harassed UK marketers trying to stay ahead of the regulatory curve. Before the ink was dry on the Regulations and they had even come into force, Her Majesty's Government was hatching yet more plans to tinker with UK consumer protection laws. In early May 2008 appeared from the Department for Business, Enterprise and Regulatory Reform a "Call for Evidence" as part of a further "Consumer Law Review".

So UK advertisers and marketers need to move fast to assimilate the Regulations and audit their practices accordingly. Otherwise they may face being not one, but two steps behind the regulators.